FIRST FEDERAL OF NORTHRN MCHGN BNCRP INC 
By ALPENA, Mich., Nov. 9 /PRNewswire-FirstCall/ -- First Federal of Northern Michigan Bancorp, Inc. (Nasdaq: FFNM) (the "Company") reported a consolidated net loss from continuing operations of $3.8 million, or $1.32 per basic and diluted share, for the quarter ended September 30, 2009 compared to a consolidated net loss from continuing operations of $610,000, or $0.21 per basic and diluted share, for the quarter ended September 30, 2008.
Consolidated net loss from continuing operations for the nine months ended September 30, 2009 was $3.6 million, or $1.26 per basic and diluted share, compared to consolidated net loss from continuing operations of $860,000, or $0.30 per basic and diluted share, for the nine months ended September 30, 2008.
The three- and nine-month results reflected a substantial provision for loan losses which related primarily to two large commercial loan relationships and a non-cash valuation allowance related to the Company's deferred tax asset.
Michael W. Mahler, President and Chief Executive Officer of the Company, commented, "Our results from core banking activities have steadily improved. We have successfully implemented strategies to reduce the costs of our deposits and to incorporate floors on variable rate loans, both of which have contributed to our significant increase in net interest margin. In addition, we have aggressively moved to reduce our manageable non-interest expenses. These strategies, coupled with strong levels of mortgage banking activities, have resulted in a marked improvement in pre-tax, pre-provision core operating earnings. Unfortunately, continued credit quality issues and declines in commercial and residential real-estate markets have had a detrimental impact on our net results."
Mahler continued, "We are very disappointed with the results of the quarter and their impact on our year-to-date performance. Improvements made to the baseline profitability of the Bank were not enough to counter the impact that the continued deterioration within real estate markets had on our loan loss provision. Additionally, our recent losses impacted the value of the Company's deferred tax assets, requiring a $2.0 million valuation allowance to be established as required by Generally Accepted Accounting Principles (GAAP). The valuation allowance is an estimate that is based on many subjective factors. Future evaluation of those factors could result in additional reserves or income recovery."
Selected Financial Ratios
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
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2009 2008 2009 2008
---- ---- ---- ----
Performance Ratios:
Net interest margin 3.41% 2.91% 3.28% 2.94%
Average interest rate spread 3.15% 2.50% 2.96% 2.51%
Return on average assets* -6.33% -1.01% -2.02% -0.49%
Return on average equity* -51.12% -7.91% -16.40% -3.76%
* Annualized
As of
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September 30, December 31, September 30,
2009 2008 2008
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Asset Quality Ratios:
Non-performing assets to
total assets 5.98% 5.57% 3.88%
Non-performing loans to
total loans 5.88% 6.14% 4.21%
Allowance for loan losses
to non-performing assets 27.32% 40.90% 28.36%
Allowance for loan losses
to total loans 2.13% 2.85% 1.42%
Total non-performing loans $10,782 $12,169 $8,327
Total non-performing assets $14,317 $13,807 $9,864
Financial Condition
Total assets of the Company at September 30, 2009 were $239.4 million, a decrease of $8.3 million, or 3.4%, from assets of $247.7 million at December 31, 2008. Net loans receivable decreased $13.5 million to $178.7 million at September 30, 2009, due to adjustable-rate or balloon mortgage loans which have paid off or been refinanced and sold into the secondary market, consumer loan balances which have declined due to normal pay-downs, limited originations of loans, and commercial loan charge-offs. The decline in net loans receivable was partially offset by an increase of approximately $7.2 million in our investment securities portfolio. Our deposits decreased $9.4 million to $156.4 million and our REPO sweep accounts decreased $2.6 million to $6.9 million at September 30, 2009. Most of the loss in deposits was in our certificates of deposit. As these deposits matured and were set to reprice lower, some left the Bank and were replaced with lower costing FHLB advances. Most of the decline in REPO sweep accounts was due to lower cash balances held by our commercial customers and not due to deposit relationships leaving the Bank.
The ratio of total nonperforming assets to total assets was 5.98% at September 30, 2009 compared to 5.57% at December 31, 2008. Non-performing assets increased by $510,000 from December 31, 2008 to September 30, 2009. The Company continues to closely monitor non-performing assets and is actively pursuing options to reduce the level thereof.
Stockholders' equity was $26.0 million at September 30, 2009 as compared to $29.4 million at December 31, 2008. The decrease was due primarily to the net loss for the nine-month period of $3.7 million. First Federal of Northern Michigan's regulatory capital remains at levels in excess of regulatory requirements, as shown in the table below.
Capital Required
To be
Capital Categorized as
Actual Capital Required Well-Capitalized
at For Capital Under Prompt
September 30, Adequacy Corrective Action
2009 Purposes Provisions
-------------- ------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Total risk-based
capital (to risk-
weighted assets) $25,142 14.69% $13,692 8.00% $17,115 10.00%
Tier 1 risk-based
capital (to risk-
weighted assets) $22,996 13.44% $6,846 4.00% $10,269 6.00%
Tangible capital (to
tangible assets) $22,996 9.71% $3,552 1.50% $4,736 2.00%
Results of Operations
Interest income decreased to $3.1 million for the three months ended September 30, 2009 from $3.5 million for the year earlier period. Interest income decreased by $1.0 million to $9.6 million for the nine-month period ended September 30, 2009 from $10.6 million for the same period in 2008. The decreases in interest income were due to two factors: a decrease in the average balance of our interest-earning assets due mostly to reductions in the size of our mortgage loan portfolio and a decrease in the yield on interest-earning assets due in part to lower market interest rates and in part to the impact of loans placed on non-accrual status during the three- and nine-month periods ended September 30, 2009.
Interest expense decreased to $1.2 million for the three months ended September 30, 2009 from $1.8 million for the three months ended September 30, 2008. Interest expense for the nine months ended September 30, 2009 decreased to $2.1 million from $3.9 million for the nine months ended June 30, 2008. The decrease in interest expense for the three- and nine-month periods was due in part to a decrease in both the average balance and cost of our FHLB borrowings, which we were able to pay down because of asset shrinkage and in part due to a decrease in the cost of certificates of deposit, many of which matured and re-priced lower.
The Company's net interest margin increased to 3.41% for the three-month period ended September 30, 2009 from 2.91% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 34 basis points to 5.58% from 6.92%, while the average cost of funds decreased 99 basis points to 2.43% from 3.42%. For the nine-month period ended September 30, 2009, the Company's net interest margin increased to 3.28% from 2.94% for the same period in 2008. During this time period, the average yield on interest-earning assets decreased 41 basis points to 5.63% from 6.04%, while the cost of funds decreased 87 basis points to 2.67% from 3.54%.
The provision for loan losses for the three-month period ended September 30, 2009 was $3.0 million, as compared to $875,000 for the prior year period. Two large commercial relationships were placed on non-accrual status during the quarter ended September 30, 2009, resulting in additional provision totaling almost $1.5 million. In addition, our recent history of commercial charge-offs has resulted in a higher estimated loss factor being applied to our entire portfolio of commercial loans, which mainly accounts for the remainder of the increased provision. For the nine-month period ended September 30, 2009, the provision for loan losses was $3.5 million as compared to $1.2 million for the same period ended September 30, 2008. The increase for the nine-month period related to increases in provision on several commercial credits. The provision was based on management's review of the components of the overall loan portfolio, the status of non-performing loans and various subjective factors.
Non interest income increased from $400,000 for the three months ended September 30, 2008 to $491,000 for the three months ended September 30, 2009. Non interest income increased from $1.3 million for the nine months ended September 30, 2008 to $2.1 million for the nine months ended September 30, 2009. The increases for both the three- and nine-month periods were primarily attributed to an increase in mortgage banking activities income. Many homeowners in our markets took the opportunity to refinance due to lower market interest rates during the first nine months of 2009 as compared to the same period in 2008. The majority of these loans were sold into the secondary market.
Non interest expense decreased from $2.2 million for the three months ended September 30, 2008 to $2.1 million for the three months ended September 30, 2009. Compensation and employee benefits, professional services and other expenses (mostly expenses related to credit quality issues and repossessed properties) decreased, partially offset by an increase in our FDIC premiums. Non interest expense increased from $6.5 million for the nine months ended September 30, 2008 to $6.6 million for the nine months ended September 30, 2009. The increase was mainly the result of an increase in our general FDIC assessment, plus the FDIC special assessment, increases in professional services and other expenses (mostly expenses related to credit quality and repossessed properties), partially offset by decreases in our compensation and employee benefits expenses and occupancy expenses.
Federal income tax expense for the three- and nine-month periods ended September 30, 2009 is impacted by the valuation allowance on our deferred tax assets of $2.0 million. The Company recorded this valuation allowance because it concluded, based on currently available evidence, that it is "more likely than not" that the future tax assets recognized will be not be realized before their expiration.
Safe Harbor Statement
This news release and other releases and reports issued by the Company, including reports to the Securities and Exchange Commission, may contain "forward-looking statements." The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company is including this statement for purposes of taking advantage of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
First Federal of Northern Michigan Bancorp, Inc.
Consolidated Balance Sheet
September 30, December 31,
2009 2008
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks $2,212,553 $3,097,788
Overnight deposits with FHLB 64,036 372,523
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Total cash and cash equivalents 2,276,589 3,470,311
Securities AFS 32,879,094 25,665,178
Securities HTM 3,980,434 4,022,235
Loans held for sale 50,000 107,000
Loans receivable, net of allowance for
loan losses of $4,309,341 and
$5,647,055 as of September 30, 2009
and December 31, 2008, respectively 178,737,529 192,270,714
Foreclosed real estate and other
repossessed assets 3,535,684 1,637,923
Federal Home Loan Bank stock, at cost 4,196,900 4,196,900
Premises and equipment 6,779,358 7,089,746
Accrued interest receivable 1,368,598 1,469,176
Intangible assets 992,869 1,192,853
Other assets 4,613,876 4,939,523
Assets of discontinued operation - 1,610,734
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Total assets $239,410,931 $247,672,293
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $156,358,009 $165,778,598
Advances from borrowers for taxes and
insurance 188,965 104,475
Federal Home Loan Bank Advances 46,750,000 40,200,000
Note Payable 630,927 768,651
REPO Sweep Accounts 6,872,443 9,447,415
Accrued expenses and other liabilities 2,651,190 1,877,600
Liabilities of discontinued operations - 76,792
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Total liabilities 213,451,534 218,253,531
----------- -----------
Commitments and contingencies - -
--- ---
Stockholders' equity:
Common stock ($0.01 par value 20,000,000
shares authorized 3,191,999 shares issued) 31,920 31,920
Additional paid-in capital 24,299,147 24,302,102
Retained earnings 5,087,238 8,762,412
Treasury stock at cost (307,750 shares) (2,963,918) (2,963,918)
Unallocated ESOP (683,861) (764,861)
Unearned compensation (192,839) (286,324)
Accumulated other comprehensive income 381,710 337,431
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Total stockholders' equity 25,959,397 29,418,762
---------- ----------
Total liabilities and stockholders' equity $239,410,931 $247,672,293
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First Federal of Northern Michigan Bancorp, Inc. and Subsidiaries
Consolidated Statement of Income
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
Interest income:
Interest and fees on
loans $2,762,789 $3,156,924 $8,570,404 $9,575,347
Interest and
dividends on
investments 211,720 248,386 584,788 764,630
Interest on mortgage-
backed securities 136,177 119,501 430,928 265,793
------- ------- ------- -------
Total interest income 3,110,686 3,524,810 9,586,120 10,605,770
--------- --------- --------- ----------
Interest expense:
Interest on deposits 795,356 1,275,690 2,736,532 3,811,954
Interest on borrowings 422,715 532,247 1,279,247 1,653,578
------- ------- --------- ---------
Total interest expense 1,218,071 1,807,937 4,015,779 5,465,532
--------- --------- --------- ---------
Net interest income 1,892,615 1,716,873 5,570,341 5,140,238
Provision for loan
losses 2,976,642 875,431 3,492,711 1,242,665
--------- ------- --------- ---------
Net interest income
(loss) after
provision for loan
losses (1,084,027) 841,442 2,077,630 3,897,573
---------- ------- --------- ---------
Non-interest income:
Service charges and
other fees 217,159 245,162 661,488 708,447
Mortgage banking
activities 244,550 85,665 1,167,626 316,382
Gain on sale of
available-for-sale
investments - - 1,227 16,052
Net gain (loss) on sale
of premises and equipment,
real estate owned and
other repossessed
assets (2,128) 5,403 25,350 28,497
Other 16,637 18,076 67,997 66,108
Insurance & Brokerage
Commissions 15,157 45,000 129,797 135,000
------ ------ ------- -------
Total non-interest
income 491,375 399,307 2,053,486 1,270,486
------- ------- --------- ---------
Non-interest expenses:
Compensation and
employee benefits 1,095,509 1,203,733 3,414,767 3,654,827
SAIF Insurance
Premiums 106,199 33,443 376,807 85,238
Advertising 31,784 40,118 93,655 98,914
Occupancy 294,567 299,616 897,054 950,952
Amortization of
intangible assets 73,113 77,122 199,983 231,367
Service Bureau Charges 76,533 72,432 255,043 240,518
Insurance & Brokerage
Commission Expense - - - -
Professional Services 93,588 112,057 359,711 309,231
Other 305,341 319,303 962,826 889,820
------- ------- ------- -------
Total non-interest
expenses 2,076,634 2,157,824 6,559,846 6,460,867
--------- --------- --------- ---------
Loss from continuing
operations before
income tax benefit (2,669,286) (917,075) (2,428,731) (1,292,808)
Income tax expense
(benefit) from
continuing
operations 1,148,845 (307,073) 1,200,585 (432,643)
--------- -------- --------- --------
Net loss from
continuing operations (3,818,131) (610,002) (3,629,316) (860,165)
Loss from discontinued
Operations, net of
income tax benefit
of $0, $12,741,
$43,209, and $29,745,
respectively - (24,733) (83,875) (57,215)
Gain on sale of
discontinued operations,
net of income tax expense
of $0, $0, $19,585
and $0, respectively - - 38,017 -
--- --- ------ ---
Net loss $(3,818,131) $(634,735) $(3,675,174) $(917,380)
=========== ========= =========== =========
Per share data:
Loss per share from
continuing operations
Basic $(1.32) $(0.21) $(1.26) $(0.30)
Diluted $(1.32) $(0.21) $(1.26) $(0.30)
Income (loss) per share
from discontinued operations
Basic $- $(0.01) $(0.01) $(0.02)
Diluted $- $(0.01) $(0.01) $(0.02)
Net loss per share
Basic $(1.32) $(0.22) $(1.27) $(0.32)
Diluted $(1.32) $(0.22) $(1.27) $(0.32)
Dividends per common
share $- $0.05 $- $0.15
SOURCE First Federal of Northern Michigan Bancorp, Inc.
